|
|
The Past
We have been in
the silver space since the beginning of this cycle in the early 2000's and
have had all kinds of experiences, discussions and arguments with industry
buffs, pundits, execs, investors large and small, advisors, professionals and
cheerleaders. Note the effort to avoid using "expert" to name
anyone on that list as there are very few who fit that description in our
view. In that time we have survived various cataclysmic events and
developments perpetrated by influential groups, authors and speakers ranging
from "digital photography will kill silver" (what was sold as a
sure thing), "silver is not money", "silver will never
get over $6/oz", to "if silver gets to $10/oz we'll all be
rich", and everything in between. Mind you, the latter two came
from executives of silver companies. Here we are with silver trading at
$17+, yet little seems to have changed.
The Present
As mentioned in
recent interviews, we are somewhat concerned with the flurry of publicity
silver's recent break out from an 18-month consolidation pattern has been
accompanied by. There's just too much attention being paid to silver in
the last couple of months for our liking. Such sentiment usually
results in some sort of pullback to shake off the overly enthusiastic and
performance chasers. That said, there is always a chance "this
time it's different". With silver being an extremely small market
compared to most others, it is prudent to expect every time to "be
different", for – certainly – one of them will be.
Then there's the
"geo's trap" - a term we coined at least in our own mind - which we
use to describe the eternal pessimism of technical people in the industry
towards the upside potential of silver prices, due to what they call
"mountains of silver out there", referring to mountains of silver
they get to walk on for a living. They say this because they get
to walk, talk, breathe and sleep silver every day and therefore cannot
imagine why silver price would go high(er), when there is such an abundance
of silver around (them). What they fail to remember is that some 6.5
billion people want the next i-gadget or at least electricity in their home,
a car and all the other wonderful things the geo has - they couldn't care
less where the metals to make them are going to come from. In our
opinion worldwide consumption of silver is roughly ONE BILLION OUNCES PER
YEAR and, if it ain't there yet, it's getting there and beyond fast.
By the same token
we try to watch out for a similar trap in our own thinking. Maybe the
fact that there is 5 times more info on silver this year than there was in
the previous 5 years, should not necessarily mean that the silver story is
out of the bag just because we happen to eat, breathe and sleep silver
(albeit on a computer screen). At some point the silver story will
break wide open and you will find yourself surrounded by silver
"experts" more numerous than there were real estate agents in the
heydays of the property market of the mid 2000s. We've said many times
before and will say it again: ultimately silver's price will be determined
by people living on $10 a day who do not know or care what you, I, the
Wall Street Journal or anyone else says or writes about silver. They
will flock to silver on their own accord because it works - it does what they
need it to do: preserve buying power and serve as medium of exchange.
But that's in the future, for now it's still an investors' market, so let us
get back to that.
The Future
Despite our reservations
in the short term, we are very bullish on
silver longer term. More importantly, we believe that
the next big move up in silver is about to begin. Not tomorrow, not
next week, but in the medium term, say next couple of years, we should see
silver at much higher prices, perhaps on the order of a double the current
level. Let's disclaim that by reminding the reader, that silver is a
bit "loco" of a market and anything is possible any day of the
week. However, we should be entering the second leg of a classic
three-legged bull market, which could potentially test the all-time highs on
the 1980.
Whether we get
there or not, will depend on a bazillion factors most of which have nothing
to do with silver. Chief amongst them should be action in currency
markets, including but not limited to the US Dollar. That is assuming
the entire financial system is not going to hell in a hand basket, which it
eventually might, but we don't expect it to in the next couple of years.
Regardless of the
magnitude of the anticipated move in the silver price, it should be
substantial enough to lift all boats. There are three main types of
instruments available to investors in the silver space: bullion, "paper
silver" and silver stocks and funds, with hybrid vehicles straddling two
or more of the. They all provide some degree of exposure to silver
price and carry commensurate risk.
Investment options
As always, we
advocate buying silver (gold) bullion first. But it's getting late in
the game for starter positions, so between now and year end you may want to
buy all the bullion you ever plan to buy. A short term pullback may be
desirable and healthy for the overall silver market, but we wouldn't bet on
it. A more mature approach is to dollar-cost-average your way into a
position (works for other types of investing as well). That means
buying X% of your overall position every few weeks or months regardless of
silver price. How large an "X%" is totally up to you.
This method usually ensures that you get a reasonable average price for the
entire position. If that doesn't quite do it for you, remember the big
picture – why you are buying silver in the first place – there
should be plenty of upside over time. It is a good idea to buy bullion
with the intent to "never" sell. Think of it as your rainy
day stash, crisis insurance, nest egg, retirement savings, heirloom –
in short, whatever helps you keep your head straight and hands off of it for
as long as you can manage. Attempts to cash it in are often ill-timed
due to the omnipotent grip of market psychology. If your theory about
silver is half right, there should be a plethora of options to switch into
something more attractive at an opportune time; if you don't have a theory,
you wouldn't be buying silver.
There are some
"paper silver" alternatives such as ETFs, pool accounts, mint
certificates, warehouse receipts, futures and options contracts. Paper
silver instruments are best suited for trading price swings and are oft
exploited by the pros. If you're still reading this, you're likely not
one of them.
There are also a
few hybrid instruments, such as Central Fund of Canada and Bullion
Management Fund, GoldMoney, BullionVault, etc.
some of which allow you to take delivery of your metal, others don't.
Hybrids are convenient and will track the metal price rather than stock
indexes which can come in handy in a stock market crash like the one we just
endured.
That brings us to
stocks and funds. There are no public silver funds that we know of at
this time. Established mutual funds such as the Tocqueville
Fund, Van
Eck Funds, US Global Investors and others can
serve as the next best thing to those unwilling or unable to do it on their
own. Most major fund companies nowadays have some sort of precious
metals, natural resource and/or commodity funds. There is also an emerging
trend of mainstream funds turning to gold and silver.
Over the coming
weeks and months we will be discussing some silver companies that we think
should do well in next few years. While some of the names may be familiar to
you (did we mention silver universe is very small?), there are gaps to be
filled and considerations spelled out regarding individual companies to aid
in your thinking about silver and related investments.
Sean Rakhimov
Editor, www.silverstrategies.com/
Also
by Sean Rakhimov
| |
